The UK economy will grow at its slowest rate since the financial crisis in 2009, thanks to a lacklustre outlook for consumer spending, business investment and trade, according to a leading business group.
The British Chambers of Commerce (BCC) predicts gross domestic product (GDP) will increase 1.3 per cent in 2018, a downgrade from its previous forecast of 1.4 per cent. The BCC also trimmed its 2019 GDP outlook from 1.5 per cent to 1.4 per cent.
The group predicts investment growth will slump in 2018 to 0.9 per cent, from 2.4 per cent last year, stifled by the high upfront cost of doing business in the UK and continued uncertainty around Brexit.
Productivity will remain weak, pay rises limited and household finances stretched, with the savings rate at a historic low and debt levels high. As a result, consumer spending will not be “materially stronger” by the end of next year, the BCC said.
The UK’s trade deficit will also widen by more than expected over the next few years, with exporters struggling to recover the ground lost in the year so far, as growth in key markets moderates, the BCC said.
The services sector, which makes up the majority of the UK economy, will see growth slow to an eight-year low of 1.2 per cent, with consumer-focused industries such as retail and hospitality expected to remain under the most pressure.
If realised, the forecast suggests the economy is in a torpor, the BCC said, with several factors having a negative impact. The business group pointed to a lack of clarity around Britain’s future relationship with the European Union, interest rate rises, a possible global trade war and rising oil prices.
Interest rates are forecast to go up by 0.25 per cent in the final quarter of the year, with another rise to 1 per cent in the second quarter of 2019.
Meanwhile, US president Donald Trump has implemented billions of dollars worth of import tariffs on a variety of Chinese goods, as well as on steel and aluminium from a number of traditional allies in Europe.
The tariffs have prompted China and the EU to take retaliatory action, raising the prospect of a damaging trade war.
The BCC urged the government to reduce the uncertainty that firms face domestically, and to take action on skills shortages and poor mobile connectivity, which lower productivity and hold UK businesses back.
Adam Marshall, director general of the BCC, said the UK now faces another “extended period of weak growth”.
“With firms facing ongoing Brexit uncertainty, increasing global protectionism and instability in some parts of the world, which will impact on costs and profits, now is the time for more robust action to support business confidence and investment.
“Brexit cannot be Westminster’s only priority. Businesses across the country want to see far more urgency around fixing the fundamentals here at home, and a concerted effort to lower the high costs of doing business.
“The next few years are set to be a testing time for business in the UK. What firms and their employees need is much more visible evidence that ministers are committed to getting the basics right – which would enable business in turn to invest, take risks and grow.”